Giacomodonato V Peartree Securities Inc.: Welcome News to Employers on ‘Fresh Consideration’ and Termination Clauses in Employment Agreements

By: Student- at - law Isabelle Nazarian and Partner Elliot Saccucci 

The recent case of Giacomodonato v PearTree Securities Inc., 2023 ONSC 3197 (CanLII) has garnered significant attention in the employment law world because of the sizeable damages award and even greater cost award (more than $830,000) handed down in the employee’s favour. While this case is undoubtedly a rough outcome for the employer, there are some useful tidbits within this complex case that are helpful to employers in rolling out new contracts.

Specifically, the court reiterated the age-old principle that its role in a contract enforcement case is to assess the existence, but not sufficiency, of consideration. It also weighed in on what needs to be explicitly referenced in a termination clause to avoid running afoul of the Employment Standards Act, 2000, S.O. 2000, c. 41(“ESA”) and therefore avoid being struck-down by the Court.

For employers, these parts of the case are welcomed and should quiet arguments about “sufficiency of consideration”, and the absence of certain specific inclusions in termination clauses, that have cropped up in employment litigation. As the rest of the case has been thoughtfully canvassed by many of our peers, we focus on these two issues of interest for employers.

BACKGROUND

In the spring of 2016, Mr. Donato, the employee, entered into his first employment agreement with PearTree, the employer. Thereafter, in the summer of 2016, Mr. Donato and PearTree agreed upon terms and executed a second employment agreement. In the beginning of 2018, PearTree terminated Mr. Donato’s employment without cause and litigation ensued in which PearTree sought to rely on the termination clause in the second agreement. Mr. Donato argued that it could not be relied on because there was no consideration for it and because of the wording of the termination clause, which he argued violated the ESA.

The Court reviewed each argument in turn.

CONSIDERATION

a. The Parties’ Positions

Mr. Donato argued:

• The second employment agreement from the summer of 2016 is unenforceable because it constituted a significant change to the terms of employment and did not provide fresh consideration.

PearTree argued:

• The second agreement was enforceable because it provided additional benefits to Mr. Donato including: additional paid vacation and a $40,000 bonus that offset the cost of his departure from his previous employer.  

b. The Court’s Analysis

The Court summarized the current legal landscape and reiterated that pre-existing employment agreements cannot be modified unless the employee receives a new benefit that constitutes fresh consideration. The Court stressed that the doctrine of consideration is essential for protecting employees from amendments that could impair their rights without receiving something other than continued employment in return given the disparity in bargaining power that exists between the employer and the employee; hence the need for ‘fresh’ consideration. Critically for employers, the Court re-stated that they are not concerned with the adequacy of consideration or whether the economic benefit exceeds what was surrendered, rather, the Court’s role is merely to ensure that something of benefit is given to the employee from the employer in exchange for entering the new agreement. The Court reiterated that it leaves it to the parties to consider the adequacy of the consideration when entering into agreements.

The Court applied this analysis to each term PearTree pointed to as fresh consideration under the second employment agreement. The first example PearTree put forward as fresh consideration was the offer of four weeks of paid vacation. This offer effectively increased Mr. Donato’s total amount of paid vacation time from the first employment agreement by two weeks, and thus, the Court determined that this new benefit was something new, or ‘fresh’. Shifting focus to whether the additional vacation was truly a ‘benefit’ flowing from the employer to the employee, the Court concluded that the additional two weeks paid vacation was unquestionably a ‘benefit’ extended by PearTree to Mr. Donato. Whereas Mr. Donato argued that the additional vacation time was merely a de minimus benefit and of no personal value to him, the Court disagreed, finding that the determination of whether consideration was provided is not predicated on the perceived value of the employee, nor is it based upon whether the actual value of the consideration is anything more than trivial.

While the Court confirmed the existence of consideration it did not weigh in on whether the consideration provided by PearTree was sufficient, once again reaffirming on the issue of adequacy of consideration that:

It is not the role of the court to assess the adequacy of the consideration provided by PearTree or to assess whether or not the economic benefits obtained by Mr. Donato outweigh what he gave up. I observe, however, that neither two additional weeks of paid vacation nor $40,000 can be fairly described as mere peppercorn.[1]

As such, the Court concluded – consistent with age-old contract law principles – that having been satisfied that consideration existed in the form of additional paid vacation and a $40,000 bonus, the value of the consideration was of no consequence and so the employer was entitled to rely on its 2018 agreement.

The Court then reviewed the wording of the clause itself to see if its wording ran afoul of the ESA, such that even if it formed part of a binding contract, it nevertheless would not protect the employer from common law damages.

SILENCE IN TERMINATION CLAUSES

a. The Parties’ Positions

 Mr. Donato argued:

• The termination provision in the second agreement was not enforceable because it would deprive him of his statutory entitlements to vacation pay by failing to expressly reference the pay-out of statutorily owed vacation pay.

PearTree argued:

• Mr. Donato did not include this argument in his amended statement of claim, nor did he present any evidence on this matter. Instead, this argument was only raised in a small portion of Mr. Donato’s written closing submissions at trial. As a result, PearTree had limited opportunity to address this particular argument. Nevertheless, the clause was assessed by the Court. The applicable wording of PearTree’s termination clause is as follows:

This employment relationship is not terminable by either party on or before September 30, 2017 except:

a. by Peartree immediately at any time for just cause by written notice to you.

b. by you upon providing a minimum of four (4) weeks notice in advance, in writing, which notice Peartree can in its discretion partially or fully waive;

c. by Peartree on a without cause basis by providing you with salary continuance, at your regular base salary, along with medical/dental benefit continuance (if such benefits are being provided at the time of termination), until the earlier of July 10, 2018, or when you commence new employment (including self employment);

d. it is also agreed that if your employment with Peartree is terminated on a without cause basis subsequent to September 30, 2017, that you will remain eligible to receive Variable Compensation relating to any deals which you had proposed in writing in Term Sheet form, presented to issuers prior to the termination of your employment and for which firm written commitments were secured and financings closed by Peartree subsequent to the date of the termination of your employment but prior to July 10, 2018.[2]

(b)   Analysis

The Court did not accept Mr. Donato’s argument that the termination clause was void because it did not reference the statutorily required pay-out of unused vacation, and thus, deprived him of his statutory entitlements. While the Court held that an employer cannot limit an employee’s rights to anything less than an ESA minimum, it concluded that this termination clause was merely silent with respect to the pay-out of unused vacation, which is not the same as contracting out of the statutory requirements of the ESA. This is a welcome construction of the clause for employers, and marked somewhat of a return to the type of purposive analysis that had been advocated by the Ontario Court of Appeal in Oudin v. Centre Francophone de Toronto, 2016 ONCA 514 (CanLII).

Here again, the Court helpfully found that PearTree’s statutory obligations to Mr. Donato were not excluded in this clause and refused to read the clause’s silence on statutory vacation pay as an attempt to limit Mr. Donato’s rights below statutory entitlements.

Therefore, the termination clause was considered valid and enforceable. PearTree was entitled to rely upon it in calculating what was owed to Mr. Donato.

TAKEAWAYS

Mr. Donato was ultimately successful on other grounds, and this decision will therefore be circulating in the employment law world to highlight the perils of aggressive, baseless counter-claims. Nevertheless, this case will be helpful to employers in these two foundational respects aspects of enforcing employment agreements.

To summarize, this case reinforces to employers the following principles:

Offer Fresh Consideration: When providing a new employment agreement to existing employees, it is imperative for employers to provide a new benefit, or fresh consideration, to ensure the enforceability of the contract.

Existence not Adequacy: However, the fresh consideration can be, for instance, a relatively modest signing bonus, or more vacation. The Court has reiterated that it is not going to analyze the value of the consideration, just the existence of it.

Drafting a Termination Clause: When drafting termination clauses, employers may not limit entitlements below their statutory obligations. However, an exhaustive list of every statutory entitlement under the ESA is not required either.

As always, we recommend reviewing contracts annually to make sure they remain enforceable in an especially dynamic area of law.

If you have any questions or need assistance, please contact Elliot Saccucci at esaccucci@ln.law.

[1] Giacomodonato v PearTree Securities Inc., 2023 ONSC 3197 (CanLII) at para 91.

[2] Ibid at para 145.